Private markets conflicts review: the FCA puts governance on the clock

The FCA has told private market firms to bring their conflicts management into line with their growth, publishing a review on 23 October that found good practice sitting alongside material weaknesses across private equity, private credit and real estate (FCA). The regulator singled out cross-fund transfers, multi-party transactions, gifts and entertainment, and information barriers as recurring problem areas, and flagged a separate line of inquiry into private credit funding consumer litigation claims (FCA).

Key Executive Takeaways

• The FCA has formally warned private equity, private credit and real estate firms that their conflicts controls have not kept pace with growth, and expects boards to tighten governance now rather than wait for enforcement.
• Cross-fund transfers, multi-party deals, gifts and entertainment, and information barriers are the four areas the regulator is most likely to probe at firm visits over the next supervisory cycle.
• A parallel FCA inquiry into private credit funding consumer litigation signals that lenders to litigation finance structures should expect bespoke scrutiny of investor, consumer and market harm.

The timing matters. The review lands as the FCA positions itself as an outcomes-led supervisor rather than a rule-writer, and as the SM&CR consultations trim pre-approval and certification requirements for around 139,000 individuals (Bank of England). Firms reading the SM&CR changes as a relaxation of accountability are reading them wrong. Michelle Beck, director of wholesale buy-side at the FCA, said firms need to ensure their management of conflicts of interest "keeps pace with growth in their size and complexity" (FCA). That is a direct instruction to senior managers who retain personal accountability for governance quality, whether or not their role still requires regulator pre-approval.

The substantive weaknesses the FCA names are the ones that scale badly. Cross-fund transfers and multi-party transactions become more frequent as GPs run successor funds, continuation vehicles and co-investment sleeves alongside each other. Information barriers degrade as firms add private credit arms to equity platforms, or real estate debt alongside equity ownership. Gifts and entertainment registers tend to be the first control to lapse when deal teams expand faster than compliance. None of this is novel, but the regulator is now putting it on the record as a sector-wide expectation, which changes the evidential bar at the next supervisory visit.

The reference to private credit funding consumer litigation claims is the sharper signal. The FCA has told the market it is examining governance and conflicts in that specific structure, citing risks of harm to investors, consumers and markets (FCA). Credit funds with exposure to litigation finance SPVs, and the LPs backing them, should assume this becomes a dedicated workstream. The read-across for insurers writing ATE cover and for banks providing leverage is equally direct.

For chairs and audit committee members, the practical question is whether their conflicts framework was built for the firm as it was five years ago or as it is now. The FCA has told the market that a review of adequacy is overdue. The firms that treat this as a prompt to refresh governance before the supervisor arrives will have the stronger hand when it does.